Question

Assume that Clampett, Inc., has $200,000 of sales, $150,000 of cost of goods sold, $60,000 of interest income, and $40,000 of dividends. Assume that Clampett, Inc., has $1,000 of earnings and profits from prior C corporation years and that the corporate tax rate is 21 percent. Clampett, Inc.'s taxable income would have been $122,000 this year if it had been a C corporation. What is Clampett, Inc.'s excess net passive income tax?

Answer 1

Answer:

$21,000

Explanation:

Data provided in the question:

Sales = $200,000

Cost of goods sold = $150,000

Interest income = $60,000

Dividends = $40,000

Earnings and profits = $1,000

Tax rate = 21%

Taxable income = $122,000

Now,

Net Passive income tax = Net passive income × Tax rate

or

= ( Interest income + Dividends ) × 0.21

= ( $60,000 + $40,000 ) × 0.21

= $21,000